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Mexico suspends clean-energy tender as AMLO takes power

Mexico's new president, a critic of recent energy market reforms, is taking a look at the country's clean-energy auction system

Mexico’s new president, Andrés Manuel López Obrador, has suspended the country’s fourth long-term clean-energy tender in order to revise its “objectives and reach”, as part of a wave of changes being made across the Mexican government.

The suspension is effective 4 December, and the government didn’t say when the revision would be completed nor when the tender would be reactivated.

Cenace, Mexico’s grid operator and regulator who organises the power auctions, said the suspension was necessary to allow more time for the new administration take control of the tender.

Cenace now plans to revise the pre-qualification of bidders by mid February 2019, meaning that contracts would only be finalised next April or later.

The tender had been in its final stages as the government was setting foreign exchange rate references, taking pre-qualification steps and accepting bids. The tender was due to be finalised with the announcement of the winners on December 18 and PPAs signed by the end of February 2019.

The suspension comes three days after López Obrador and his new government, including new energy secretary Rocio Nahle, were sworn in for a six-year term.

Rocio, a strong critic of Mexico's 2014 energy reform, as well as López Obrador have been saying they would revise the reforms, claiming they don’t serve the interests of the Mexican people.

The reforms were approved by Congress and enacted during the term of López Obrador’s predecessor, Enrique Peña Nieto, to open up the oil and power industries to private and foreign investment.

In renewables, tenders for energy through 15-year, US-dollar indexed PPAs were the path chosen to attract private investment and enable the country to reach the 35% of clean energy supply target by 2024.

Since the reform, Mexico has held three tenders finalised in 2016 and 2017, in which 7GW of mostly solar and wind projects were contracted as prices declined from over $40 per MWh to under $20/MWh in last year’s tender.

The fourth tender had been expected to be an improvement on the first three tenders as the government had revised rules and gradually raised the entrance bar year after year.

So far, Mexico’s clean-energy tenders have contracted with 66 projects and attracted $8.6bn of investment in renewables, according to Mexico’s outgoing energy secretary, Pedro Joaquín Coldwell.

Thanks to the tenders as well as projects in the non-regulated market, Mexico’s wind capacity has risen to 5.5GW, up from 3.8GW in 2016, according to data from the Mexican Wind Power Association (AMDEE).

But López Obrador, a leftist known as AMLO, has long criticised the reform for shrinking the role of state power company CFE. In his inaugural speech on 1 December, as well as the four-month transition period after the election, López Obrador and his future energy secretary indicated that the new government would support renewables but would also “rescue” the role of CFE, promising to modernise old hydropower and thermoelectric power plants.

“We won’t shut down a single power plant,” López Obrador pledged.

But sources familiar with Mexico’s renewable energy sector indicated that new government might want to review the tender process to understand why so many contracted projects from the first tender in 2016 haven’t yet been built, a fact that has eroded credibility of the process.

Coldwell said in a congressional address in September that of the total contracted, five were operational, four were undergoing tests and 21 were being built. Another 36 were undergoing licensing processes and/or negotiating land tenure through public consultations and hearings with local communities.

Still, the fourth tender had attracted reasonable interest from investors. Among the 28 pre-qualified bidders, traditional global investors in Latin America were short-listed by the government: Enel, Voltalia, Engie, EDF Renewables, Iberdrola, Neoen, Jinko Solar and Canadian Solar were pre-qualified.

The region’s large potential, the wind and solar industries’ capacity of creating jobs and of offering cheaper power, as well as the fast build-out of new plants make such policies resilient to political change in a job and power hungry region.

The suspension of renewable energy policies was also seen in Brazil after a change of government in 2016, as incoming officials alleged there was no power demand due to an economic crisis. Tenders, however, were restarted a few months later almost unchanged, indicating a resilience of renewable energy policies.

In Argentina, the current Maurício Macri administration enacted a renewables bill approved by his predecessors; in Chile the Sebastián Piñera administration – inaugurated earlier this year – said it will continue the country’s renewable energy policies; and in Colombia, President Ivan Duque – sworn in in August – has scheduled the first renewable energy tender for 2019 based on policies approved and put in place by the previous government.

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Mexico suspends clean-energy tender as AMLO takes power

Mexico suspends clean-energy tender as AMLO takes power

Mexico's new president, a critic of recent energy market reforms, is taking a look at the country's clean-energy auction system

Mexico’s new president, Andrés Manuel López Obrador, has suspended the country’s fourth long-term clean-energy tender in order to revise its “objectives and reach”, as part of a wave of changes being made across the Mexican government.

The suspension is effective 4 December, and the government didn’t say when the revision would be completed nor when the tender would be reactivated.

Cenace, Mexico’s grid operator and regulator who organises the power auctions, said the suspension was necessary to allow more time for the new administration take control of the tender.

Cenace now plans to revise the pre-qualification of bidders by mid February 2019, meaning that contracts would only be finalised next April or later.

The tender had been in its final stages as the government was setting foreign exchange rate references, taking pre-qualification steps and accepting bids. The tender was due to be finalised with the announcement of the winners on December 18 and PPAs signed by the end of February 2019.

The suspension comes three days after López Obrador and his new government, including new energy secretary Rocio Nahle, were sworn in for a six-year term.

Rocio, a strong critic of Mexico's 2014 energy reform, as well as López Obrador have been saying they would revise the reforms, claiming they don’t serve the interests of the Mexican people.

The reforms were approved by Congress and enacted during the term of López Obrador’s predecessor, Enrique Peña Nieto, to open up the oil and power industries to private and foreign investment.

In renewables, tenders for energy through 15-year, US-dollar indexed PPAs were the path chosen to attract private investment and enable the country to reach the 35% of clean energy supply target by 2024.

Since the reform, Mexico has held three tenders finalised in 2016 and 2017, in which 7GW of mostly solar and wind projects were contracted as prices declined from over $40 per MWh to under $20/MWh in last year’s tender.

The fourth tender had been expected to be an improvement on the first three tenders as the government had revised rules and gradually raised the entrance bar year after year.

So far, Mexico’s clean-energy tenders have contracted with 66 projects and attracted $8.6bn of investment in renewables, according to Mexico’s outgoing energy secretary, Pedro Joaquín Coldwell.

Thanks to the tenders as well as projects in the non-regulated market, Mexico’s wind capacity has risen to 5.5GW, up from 3.8GW in 2016, according to data from the Mexican Wind Power Association (AMDEE).

But López Obrador, a leftist known as AMLO, has long criticised the reform for shrinking the role of state power company CFE. In his inaugural speech on 1 December, as well as the four-month transition period after the election, López Obrador and his future energy secretary indicated that the new government would support renewables but would also “rescue” the role of CFE, promising to modernise old hydropower and thermoelectric power plants.

“We won’t shut down a single power plant,” López Obrador pledged.

But sources familiar with Mexico’s renewable energy sector indicated that new government might want to review the tender process to understand why so many contracted projects from the first tender in 2016 haven’t yet been built, a fact that has eroded credibility of the process.

Coldwell said in a congressional address in September that of the total contracted, five were operational, four were undergoing tests and 21 were being built. Another 36 were undergoing licensing processes and/or negotiating land tenure through public consultations and hearings with local communities.

Still, the fourth tender had attracted reasonable interest from investors. Among the 28 pre-qualified bidders, traditional global investors in Latin America were short-listed by the government: Enel, Voltalia, Engie, EDF Renewables, Iberdrola, Neoen, Jinko Solar and Canadian Solar were pre-qualified.

The region’s large potential, the wind and solar industries’ capacity of creating jobs and of offering cheaper power, as well as the fast build-out of new plants make such policies resilient to political change in a job and power hungry region.

The suspension of renewable energy policies was also seen in Brazil after a change of government in 2016, as incoming officials alleged there was no power demand due to an economic crisis. Tenders, however, were restarted a few months later almost unchanged, indicating a resilience of renewable energy policies.

In Argentina, the current Maurício Macri administration enacted a renewables bill approved by his predecessors; in Chile the Sebastián Piñera administration – inaugurated earlier this year – said it will continue the country’s renewable energy policies; and in Colombia, President Ivan Duque – sworn in in August – has scheduled the first renewable energy tender for 2019 based on policies approved and put in place by the previous government.

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